Home-Building Drops
Amid Further Declines

While new-home construction tumbled in July to the lowest pace in a decade, supplies remain high and demand keeps dropping -- giving the market more room to fall.

The latest credit tightening also may halt some mortgage lending and keep more buyers on the sidelines, pushing the housing market down further.

"We have a classic inventory problem," said IDEAglobal chief U.S. economist Joseph Brusuelas. "There's far too much supply out there in the market, especially in the new-home sector. Prices are going to have to adjust."

Housing starts fell 6.1% to a seasonally adjusted annual pace of 1.38 million, 21% below the level a year earlier, the Commerce Department said. Permits for new construction dropped 2.8% to an annualized 1.37 million units, the lowest since late 1996. Housing completions slid 0.1% to 1.51 million.

Trouble among lenders and tightening credit markets are expected to feed the declines in coming months by limiting the availability of mortgages.

"We have to assume that at least some people are getting caught in the crossfire when trying to buy a home," said Michael Englund, chief economist at Action Economics.

Starts on single-family homes dropped 7.3% to an annual pace of 1.07 million, 42% below their peak in January 2006. Starts on multifamily units, such as those used as rental properties, declined 1.6%. The declines were sharpest in the South, where building activity was especially strong last year. July starts in the region fell 11%, while in the West they were down 3.7%, and in the Northeast by 1.3%. In the Midwest, however, construction increased 2.6%.

Overall housing starts should decline 20% from the July pace during the first half of next year, Morgan Stanley economist David Greenlaw wrote to clients. "It's clear that if prime borrowers' access to mortgage credit remains restricted for any significant length of time, the slowdown in starts will be longer and deeper than previously anticipated."

The weak housing market is expected to weigh on economic growth in the second half as demand falls for construction materials, appliances and home furnishings.

Separately, jobless claims last week increased to a two-month high, a further sign of a softening labor market after the unemployment rate ticked up last month. The number of workers filing initial claims for jobless benefits rose 6,000 to a seasonally adjusted 322,000, the Labor Department said.

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